South Africa is battling one of the worst droughts ever recorded that already started in early 2015. Since 1904, rainfall in all nine provinces has averaged 608mm per annum, while in 2015 South Africa received an average of only 403mm (66% of the annual average). Previously the lowest rainfall received in a year was in 1945, when the country received 437mm (72%). The forecast for 2017 looks even more grim, especially for the agricultural sector.
The Western Cape has a very important part to play in the agri-economy in South Africa. Water levels remain low, so crops must be managed carefully to get it through to harvest.
Why do we need rain?
The Western Cape is probably one of the most important provinces in regard to export of agricultural products. The deciduous fruit industry, table grapes, citrus, wine and vegetable is setting base in the western cape, which is key export produce that contribute significantly to the economy.
Water shortage is not the only impacting component in the agricultural sector. The heat and the strong winds will also have an impact on the cosmetic appearance of the product, which will impact the marketability of the product and then the price.
The environmental factors will also have an impact on meat and cash crops(vegetables). Water will be held for long-term crops because it brings in more income, so vegetable will not be planted. In short term we will see shortages of vegetable, consumers need to be concerned about supply price and the situation will worsen towards the end of the year.
The strengthening of the rand against major currencies over the past few months may also have added to the pressure on export prices.
What is the impact on GDP contribution?
The Western Cape contributes 24% to the total GDP in South Africa. Agriculture has a contribution to the GDP of the Western Cape of approximately 4%. The significance is that agriculture and agro-processing is responsible for 18% of employment in the province. The drought will have the biggest impact on seasonal employment in the deciduous fruit industry. Due to possible lower production, less seasonal workers might be employed, with obvious consequences.
Coming as it did after an already below average production season, the combination of the drought and the weaker exchange rate has already impacted severely on the agricultural commodity prices. Furthermore, reduced production volumes will impact on South Africa trade balance. The assumption is, sectors that would normally contribute to a positive trade balance, will shift to a negative trade balance.
What is the long-impact of the drought?
Although agriculture only makes up 4% of the sector when compared to other industries, most of agriculture production, in access of 70%, gets used by the manufacturing industry, the Western Cape is a key contributor to this. So in turn, the whole value chain will suffer.
Fig. 1 Weight of products in the basket which will be affected by the drought